Caisse Bets Big On India's Power Assets?

This month, ICICI Venture Funds came up with a new investment platform to acquire conventional power assets. The fund comes at a time when capital goods maker Bharat Heavy Electricals (BHEL) is seeing 45 per cent of its Rs 1.1-lakh core order book face the challenge of stalled or slow moving projects. A large number of this are stuck due to financial constraints that ICICI Venture’s power platform plans to benefit from. Prashant Purker, managing director and CEO of ICICI Venture Funds, spoke to Abhineet Kumar on his plans for that. Edited excerpts:

What is the worth of assets you are targeting to acquire with your $850-million power platform?

Clearly, there are a lot of power assets just getting completed or stuck in the last mile of completion with over leveraged situations at company or sponsor level. They need someone who can buy the assets out, inject equity to complete the project and have the capability to operate these assets on a long-term basis. This platform provides that — Tata Power bring operating capabilities and ICICI Venture provide fund management service as sponsors for the fund.

In return, these assets benefit those investors who need long-term yields. This is ideal for our investors such as Canadian pension fund CDPQ (Caisse de depot et placement du Quebec) as well as sovereign funds Kuwait Investment Authority and State General Reserve Fund of Oman.

As a funds-house, what is your strategy for platforms? Can we expect more such platforms to come in the future?

In 2014, we collaborated with Apollo Global Management to raise first special situation funds for India. We raised $825 million under our joint venture AION Capital Partners. Unlike funds, platforms are dedicated to some sort of investments where assets can be aggregated. Our strategy is to identify situations or opportunities in the market that require certain things to be brought together and then bring it with whatever it takes.

With the pedigree and group linkage, ICICI Venture is in a unique position to achieve this. Among domestic institutions, it is the only one which is truly multi-practice with four investment teams across private equity (PE), real estate, special situation and power assets. Across these four, we have $4.15 billion assets under management and it does not include the fund we raised in the venture capital era. Today, we have the largest dry powder of $1.5 billion across these funds.

It has come with our ability to spot opportunity earlier, and bring together whatever it takes. We will continue to look for new platform opportunities.

What is the update on your PE and real estate funds?

For real estate, we’ve total assets under management of $625 million with two funds fully invested. Now we plan to raise our third fund and have applied to the regulator for approval.

For PE, we are in the process of raising our fourth fund and have concluded interim closing as well as the first two investments. We have also started investing from our fourth fund with a couple of investments — Anthea Aromatics and Star Health Insurance — already made. Our PE fund will remain sector-agnostic and look for growth capital investment opportunities coming from rising consumption. In terms of exits, we have returned nearly half of our third fund to investors from various exits with Teamlease being the latest one where we used the IPO (initial public offering) route. Exit from the rest of the investee companies from the third fund is in the process of using multiple routes of IPOs, secondary sale, or strategic sell-off.

What is the sense you get on limited partners' view for investments in India as you raise your fourth PE fund?

Limited partners are today happier with exits position than they were a couple of years ago. Obviously, markets can’t just keep absorbing the capital; it has to return. With IPO markets opening up and given the increasing number of secondary deals, the sentiment for investments has improved. We are also seeing larger traction for strategic buy-outs as Indian promoters are fine with giving up controls. Is it that people are hundred per cent convinced to come to India - we are not in that position. People are looking for quality managers. Many funds would not be able to raise money as investors now want to gravitate to a few who have delivered returns and have a track record to show.
As disruption affects businesses across industries, how prepared are your investee companies to face it?

Today, every company has to be on its toes to look at technology – be it health-care or banking. At every company’s board, directors with grey hair are asking about social media presence and how customers are being acquired. So, technological disruption has become truly mainstream.

It is an ongoing process, and they are today definitely more prepared than they were two years back.

Good interview with a bright person who is obviously very well informed on what is going on in India and the opportunities that exist there across private markets.

I bring this particular interview to your attention not because I know Prashant Purker or want to plug ICICI Venture Funds but because they have some very savvy investors on board including the Caisse and Kuwait Investment Authority. Why are these two giant funds investing in India's power assets? Because it's an emerging market that is growing fast and if pensions find the right partners, they can benefit from this growth investing in public and private markets. Power assets are in line with the Caisse's philosophy under Michael Sabia's watch, ie. slow and steady returns, which is why it doesn't surprise me that they opted to invest in this new platform which will invest in power assets that provide a steady long-term yield.

And the Caisse isn't the only large Canadian pension fund investing in India. Many other Canadian pension funds invest in India, including the Canada Pension Plan Investment Board (CPPIB) which opened a new office in Mumbai last year to focus on investment opportunities across the Indian subcontinent.

Are there risks investing in India? Of course there are. Extreme poverty, gross inequality, rampant corruption and war with Pakistan are perennial concerns, but this emerging market has tremendous long-term potential even if the road ahead will undoubtedly be very bumpy. And unlike China, India is a democracy with favorable demographics but its infrastructure is nowhere near as developed as it is in China.

As you can see below, one thing India has in common with China is problems with its pension system. The Real News Network reports on why 150 million Indians recently took to the streets to protest in of the largest one day strike in history.

Also, Press TV reports that bilateral ties between India and Pakistan have further deteriorated following the recent attack on Indian army soldiers in north Kashmir. New Delhi accused Islamabad of being behind the attack, with Pakistan rejecting the accusation.

Let's hope this situation doesn't disintegrate any further than it already has and that these two neighboring countries can coexist peacefully for many more decades.

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I am an independent senior economist and pension and investment analyst with years of experience working on the buy and sell-side. I have researched and invested in traditional and alternative asset classes at two of the largest public pension funds in Canada, the Caisse de dépôt et placement du Québec (Caisse) and the Public Sector Pension Investment Board (PSP Investments). I've also consulted the Treasury Board Secretariat of Canada on the governance of the Federal Public Service Pension Plan (2007) and been invited to speak at the Standing Committee on Finance (2009) and the Senate Standing Committee on Banking, Commerce and Trade (2010) to discuss Canada's pension system. You can follow my blog posts on your Bloomberg terminal and track me on Twitter (@PensionPulse) where I post many links to pension and investment articles as well as my market thoughts and other articles of interest.

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